Natural Beauty, Inc, a distributor of natural cosmetics is ready to begin its th

Question

Natural Beauty, Inc, a distributor of natural cosmetics is ready to begin its third quarter, in which peak sales occur. The company has requested a $80,000, 90-day loan from its bank to help meet cash requirements during the quarter. Because Natural Beauty has experienced difficulty in paying off its loans in the past, the bank's loan officer has asked the company to prepare a cash budget for the quarter. In response to this request the following data have been assembled: a. On July 1, the beginning of the third quarter, the company will have a cash balance of $28,000. b. Actual sales for the last two months and budgeted sales for the third quarter (all sales are on accounts): Past experience shows that 25% of a month's sales are collected in the month of sale. 70% in the month following sale, and 2% in the second month following sale. The remainder is uncollectible. c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below. Merchandise purchases are paid in full during the month following purchase Accounts payable for merchandise purchases on June 30, which will be paid during July, total $128,000. d. Equipment costing $15,000 will be purchased for cash during July. e. In preparing the cash budget assume that the $ 80,000 loan will be made in July and repaid in September. Interest on the loan will total $1, 200. Prepare a cash budget by month and in total, for the third quarter.

Explanation / Answer

Cash collections July August September Total May sales 5000 5000 June sales 147000 4200 151200 July sales 65000 182000 5200 252200 August sales 77500 217000 294500 September sales 75000 75000 Total 217000 263700 297200 777900 2) Cash Budget July August September Quarter Cash balance beginning 26000 47000 29700 26000 Add receipts collections from customers 217000 263700 297200 777900 Total cash available 243000 310700 326900 803900 Less : Disbursements     Merchandise purchase 126000 156000 155000 437000      Salaries and wages 42000 42000 25000 109000       Advertising 52000 62000 63000 177000      Rent payments 21000 21000 21000 63000       Equipment purchases 15000 15000 Total disbursements 256000 281000 264000 801000 Excess (deficiency ) of receipts overdisbursemnts -13000 29700 62900 2900 Financing     Borrowings 60000 60000     Repayments 60000 60000     Interest 1200 1200 Total financing 60000 0 -61200 -1200 Cash balance, ending 47000 29700 1700 1700

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